Natural resources, quality of institutions and foreign direct investment in Africa

Ludovic Feulefack Kemmanang and Bertelet Ngassam ()
Additional contact information
Bertelet Ngassam: University of Dschang, Department of Public Economics

Economics Bulletin, 2020, vol. 40, issue 1, 148-162

Abstract: Several studies have shown that weak institutions discourage foreign direct investment (FDI) inflows. However, an analysis of the World Bank (2019) and UNCTAD (2019) statistics reveal that some countries in Africa, which are heavily endowed with natural resources and having internal conflicts have managed to attract significant FDI. This study seeks to find out whether it is possible that, for the same countries with weak institutions, some foreign investors can be attracted while others are systematically repelled. This concern is analyzed through the Dumitrescu and Hurlin (2012) causality test and the Pool Mean Group (PMG) method, applied to five African oil-exporting countries, between 1996 and 2017. Our study shows that FDI to non-extractive activities are highly sensitive to transparency in the management of natural resources. Our study also finds that dependence on natural resources determines the quality of institutions. Subsequently, the increase in the degree of dependence on natural resources neutralizes the negative effect of the quality of institutions on extractive FDI and conversely, absorbs the positive effect on non-extractive FDI. Then, in the presence of abundant resources, the quality of institutions shatters. Resource-rich countries do not need institutional reforms to attract FDI in the extractive sector, but by diversifying their economies and strengthening their institutions, they will be able to attract more non-extractive FDI.

Keywords: Institutions; natural resources; transparency; FDI; Africa (search for similar items in EconPapers)
JEL-codes: F2 O1 (search for similar items in EconPapers)
Date: 2020-02-05
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (9)

Downloads: (external link)
http://www.accessecon.com/Pubs/EB/2020/Volume40/EB-20-V40-I1-P15.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ebl:ecbull:eb-19-00895

Access Statistics for this article

More articles in Economics Bulletin from AccessEcon
Bibliographic data for series maintained by John P. Conley ().